The courts continue to find in favour of HMRC in cases involving avoidance schemes, with the most recent example being Vaccine Research Limited Partnership and another v CRC at the Upper Tribunal.
With so many cases going against such scheme providers, questions are raised as to whether the various new powers that HMRC is seeking on avoidance and other matters are really necessary? Perhaps using the existing HMRC powers to more effectively challenge such schemes is all that is really needed.
Vaccine Research Limited Partnership and another v CRC
The case in question concerned an R&D avoidance scheme, with a partnership being established in Jersey. The taxpayer partnership entered into an agreement whereby it paid another entity, Numology Ltd, £193m to purportedly carry out research and development (R&D).
Numology paid a very small proportion of this (£14m) to a subcontractor, PepTCell, who actually undertook the work and then contributed £86m to the taxpayer business itself. The partners claimed for a loss of £193m in respect of R&D capital allowances.
The Upper Tribunal unheld the First-Tier Tribunal’s decision, finding that the funds were put into an artificial loop and effectively only the £14m paid to the subcontractor was genuinely incurred for R&D. The Tribunal noted that the FTT was right to conclude “that Numology Ltd’s contribution represented funds put into a loop as part of a tax avoidance scheme, and [was] not in reality spent on research and development”.
The evidence of recent case law suggests that the existing provisions available to HMRC are sufficient to close down avoidance schemes and yet they continue to seek new powers in the name of cracking down on tax avoidance. It is concerning that HMRC continue to amass new powers, such as attempting to take funds directly from bank accounts and issuing non-appealable tax demands, on the premise that they are needed when it appears that they are not. Please feel free to share your own thoughts below.